MSU and its money, Day One

First, today’s links -– mainbar and sidebar -- because you should start there. The point of this series was to delve into the financial side of MSU athletics like never before, to give a clear and thorough picture of how it all works. After the five days is up, you’ll see that the delving is just beginning.

    Hopefully, we’ll some day be able to give “apples to apples” comparisons of the Big Ten athletic departments’ budgets and break down the differences in the ways they do business. And we’ll be able to further analyze MSU’s situation. Does it matter? I think so. These are still public institutions (save Northwestern) for one thing. And this industry clearly needs to change its ways if it wants to survive, as is, long term.
    The “apocalypse” predicted by Richard Sheehan (a Notre Dame finance prof whose expertise lies in the business of college sports) would start at the lower levels.
    “The Big Ten, SEC, Pac-10, that’s not where the problem is right now,” Sheehan said. “The problem is in the MAC, the Big West, Conference USA, where football programs are barely breaking even.”
    At the BCS level, things are OK for now in part because of an increased emphasis on private donations (Day Four of the series).
    “Why there’s no apocalypse now is, schools like Michigan State that were feeling the pinch began to look around to other institutions like Florida, USC, etc., that have an aggressive reliance on donors,” Sheehan said. “The question becomes five to 10 years down the road. If costs continue to increase, then where do you go?”
    Mark Hollis has some ambitious plans to stabilize MSU’s situation, and it’ll be interesting to see how he does. This is sort of like his “team” and it’s in rebuilding mode. In his first year he’s trying to “change the culture” (basically, convince people in his department to spend less), and it could take a few years to create a consistent winner.
    That is, a department that earns more than it spends and feeds the reserve fund, rather than taking from it each year to balance the books. A new focus on offense (fund raising) looks promising, but MSU really needs to revamp its defense.

    Now some other items that should be mentioned:
    * You might be surprised at the financial arrangement between the university and the athletic department, including the fact that the school gets parking and concessions from athletic events. Some athletic departments (Wisconsin and starting this year, Indiana) do their own concessions.
    At Illinois, the athletic department pays the salaries for its employees, but the school picks up the benefits. Minnesota athletics gets no parking but gets a percentage of concessions. It also is able to keep all of its Big Ten money (bowls, TV), while MSU and other schools take a percentage from the athletic department.
    The university operates and pays for fixes to Breslin Center, so the athletic department has to rent it for games. Athletics operates Spartan Stadium and Munn. Also, the university pays for some salaries in athletics, primarily in SASS (Student-Athlete Support Services). All of Indiana’s SASS people are paid by the school.
    “We all have different breaks in different ways,” Minnesota AD Joel Maturi said. “Comparing apples to apples is so hard.”
    So is MSU’s deal fair?
    “From my standpoint, I think yeah, it is fair,” said Fred Poston, MSU’s vice president for finance and operations. “You never find an AD who doesn’t need more money, but I’ve never found a dean who doesn’t need more money. If you could sit in my chair and go through all the nitty gritty and nuances, what you’d find is it’s fairly even.”
    Hollis has gone out of his way to make it clear that he isn’t complaining about the arrangement, although he’s actively campaigning for a break on scholarships, which some athletic departments get. He wants all MSU athletes to get in-state tuition. This would save his department money (at the expense of the university) while allowing MSU non-rev coaches to recruit better athletes. If a coach is considering two athletes and one is superior but the other lives in Michigan, that coach may opt for the in-state kid to save money. It doesn’t appear this break is imminent.
    * Fuel costs are a concern here, as everywhere else in the world. MSU expects the cost of air fuel to rise by 50 percent to 100 percent in the next year. The department sends its teams on chartered flights and gets an after-the-fact fuel bill for those flights.
    “You get a nice little surprise, and it’s usually not good,” Hollis said.
    Hollis estimates a $2 million cost increase this year between fuel, housing and tuition.
    * Positive NCAA reforms are having an effect. There’s a larger emphasis at MSU and elsewhere on academic performance of athletes, and compliance with NCAA rules. These are good things. They’re also costly. MSU has 18 full-time employees between compliance and SASS, areas that used to be overseen by a handful of people total – before academic and compliance transgressions led to probation for the football program in the mid-1990s.
    “They’re necessary, but they don’t raise money,” Hollis said of those departments. “Marketing, the ticket office and sports information are relatively small departments. And those are all areas that can generate revenue.”
    * If you’ve been paying really close attention, you may remember an LSJ story that came out a few years ago that reported MSU athletics as breaking even for the 2004-05 budget year. That’s what associate AD for finance Peggy Brown reported to me, via e-mail, when I did the story. As it turns out, the department was actually $750,000 in the red. Brown, who refused to be interviewed for this series, apparently tallied it up after the reserves were used to balance things.
    First of all, let me apologize for getting it wrong in the story. Now that we’ve got it right and I have a better grasp on things, I don’t think we’ll run into that kind of problem again.
    * In the most recent budget year, 2007-08, MSU finished $1.5 million in the red. The department actually was headed for a surplus of $1 million or so, but it was determined that Spartan Stadium’s east upper stands needed some structural repairs for safety purposes. And there went $2.5 million that was not planned for heading into the year.
    * Indiana athletic director Rick Greenspan was a valuable resource for this series. He was also interviewed before resigning in the wake of the Kelvin Sampson mess. That doesn’t change the value of his insights (and he is still technically AD for a while).
    * And now for some quotes that didn’t make the paper but are worth relaying...
    Poston, on the situation in college athletics: “The arms race is one that’s disturbing to me, largely because the capacity (for growth) is not infinite. How much longer this all will go on, I don’t know. I worry about it, it spreads into other areas.”
    Maturi, on the firing of Dan Monson and Glen Mason in the same year, which ultimately forced him to borrow $6 million from the university to balance the budget: “I was the genius who did it twice in one year. … Someone’s got to pay the bills. We borrowed from the university and we are paying it back. It’s not like we could turn off the electricity.”
    Maturi, on talks he has with faculty groups about spending, specifically salaries (hoops coach Tubby Smith makes $1.8 million a year): “I say, ‘I can’t defend these salaries other than to say, it’s the market.’”
    Greenspan, on IU’s situation: “We’re the smallest operating budget in the Big Ten, and we tend to use that as a little bit of a motto. We value efficiency, getting more out of less. Identifying needs vs. wants, because they aren’t always the same. We’re working with a thinner margin of error than the other Big Ten schools.”
    Greenspan, on the need for NCAA reform to help change the way things are going financially: “I’d like to think we can get some help from the NCAA to change the way we do business. It’s not a local issue. It’s a national issue. The NCAA has as much responsibility to guide us in these areas as any other area.”
    Sheehan, the Notre Dame professor, on the issue of paying players some day: “If a volleyball player injures her ankle, she’s eligible for worker’s comp. There are all kinds of issues that would come out of paying players. Do you really want to go down that road?”
    Sheehan, on the differences between self-sufficient athletic departments, like those at MSU and most public, BCS schools, and athletic departments that have their budgets set by the universities, such as Notre Dame, other private schools and mid-majors: “Both approaches have serious, serious problems. Notre Dame’s way brings an incentive problem. If you’re running an athletic department, do you have the incentive to raise more revenue? The way Michigan and Michigan State do it, in some respects you’re competing with the university as a whole. If you’re a donor, you can donate $1 million to a named scholarship for the starting offensive guard, or you can fund a professorship. In some cases you have fund raisers fighting each other for the same people.”
    MSU associate AD for communications John Lewandowski, on the difference between now and then: “When I was first hired, it was ‘Do what you’ve got to do, and we’ll get it covered.’ Now, that is not the case.”
    And that leads us to Day Two: Where can MSU cut?

Comments

[stone]

here's the ultimate solution Joe, kill all programs that aren't profitable. i don't mean extinguish those sports, i mean make them club sports. then the athletic dept would be 3 sports teams, maybe 4.

if they kids want to play, they should have to pay and or raise their own money for it.

[JRS]

In light of rising airfare and fuel costs does it make much sense
for the MSU football team to be going to California to play a non conference game? I realize that the schedule was set long ago but
these things should be looked at
carefully in the future.

[Izzo '08]

agreed stone, unfortunately, title IX will never allow that to happen

[contrary]

Stone, that isn't a real solution. Football loses money at most universities. But college life wouldn't be the same without football saturdays. And it's not the swim or the golf teams breaking the budget.
Izzo '08 nice non sequitur, hate women much? Title IX would allow a four sport athletic department. It would have to have two men's and two women's sports.

[Paul]

Let's be honest! College football makes or breaks a major university's athletic budget. We have not had a winning trend or tradition in the last 30 years! We are lucky that our athletic department is not in far worse shape. Coach D is a very good Coach in the same league as Coaches Saban and Daugherty. And Coach Perles is not even in the same league as these two. It is simple; win consistently in football and our athletic budget will be fine. That's it...period.

[mark]

Joe

A couple of observations. IMO of course

First, the administration takes 1% of revenue off the top (not to mention all the other items that are "skimmed" off). Seems to me that is between $500K and $1M per year. Takes care of the deficit right there.

Second, with all of "mandated" non-revenue sports that the department is "forced" to undertake, due to the reliance on the male revenue sports, it would not be unreasonable to have some participation from the General Fund.

Reading the sidebars, the way for football and basketball to go is to a "club" sport rather than a "semi-pro" sport. I believe that athletic clubs are outside of Title IX, so no issue with funding as these sports are self-sufficient. All the revenue and fund-raising will pay for the "club expenses" including "scholarships" for participation.

[Club Sport Fencer]

I play club sports at MSU, and let me tell you, the solutions you propose are ridiculous.

Club teams, by definition, get no money from the university or the athletic department. That means no money for coaches, travel, tutors, hotels or anything else the team needs. It would also mean no scholarship agreement with the university. Any "scholarships" would be full payments by benefactors of the sport.

This would require each sport to be funded entirely by its own donations and ticket sales. It would also require them to have their own venue or rent it from the university (for exorbitant sums I might add).

Furthermore, the NCAA currently doesn't do anything for club teams. It'd require massive restructuring of the NCAA to allow club teams to compete in official championships.

So unless you want MSU football to play Western, Eastern and Alma every year and compete for the US Club Football Championship, that just isn't going to work.

[sagmondia]

Nice

[mark]

Club Fencer

You're thinking of a traditional "club", you make my case when you refer to "This would require each sport to be funded entirely by its own donations and ticket sales. It would also require them to have their own venue or rent it from the university (for exorbitant sums I might add). "

The football, basketball and hockey teams apparently already "rent" the facilties that they don't own.

I agree that all of the BCS/D-1 conferences would have to embrace the same model to insure that the schedules would be able to be retained.

The benefit is that the remaining NCAA sponsored sports would be funded from the General Fund like they should rather than "hand to mouth" by begging for the scraps that remain after the "revenue sports". It would also get rid of the sham that exists nationally regarding the "student" status of many of the revenue producing sports students.

[stone]

essentially i propose the only sports in the athletic dept to be football, hockey, mbasketball, wbasketball.

the rest to be club teams. and club sport fencer, all that you listed is my exact point. there should be no entitlement in expecting people to pick up the bill for fencing, baseball, and all the other sports you mention.

if you want to play, pay. otherwise retire like the rest of us had to.

[thawks]

Paul has it right on the mark. When the football team is winning it makes all of those other sports possible. When the stadium is filled you can increase ticket prices, build additions, add more seating and in turn bring in more money. Donors tend to give more to a winning operation than they do a losing one. Respectability helps too. If the head coach is respected and brings in smart, responsible kids (Izzo, Carr, Paterno) the department makes money. When a program brings in a JA to coach, or hires a vastly unqualified assistant (L and Bobby) donors tend to not want to give as much money.